Real estate looks rosy
But an upbeat assessment
is tempered by worries over
economic growth and the
impact of world events
Hawaii's real estate market continues to look bright for the future, though overall prospects are tempered with some concern about economic growth and the impact of world events, according to a panel of local experts.
"When we add total single-family homes and condominiums sold, we're at a point where it's never been higher historically," said Harvey Shapiro, a real estate researcher for the Honolulu Board of Realtors.
Shapiro and others gave their analysis and predictions yesterday at the mid-year meeting of the Hawaii Developers Council meeting.
Though 2002 was a record year for home sales, with continuing low interest rates, those numbers will be exceeded this year, Shapiro said.
"It's clear our sales are being generated by low numbers on the interest rate scale," he said.
With 5,123 home sales so far this year, Oahu's market is already 21.5 percent ahead of 4,200 sales recorded last year. Moreover, the total dollar volume of sales, at $1.5 billion, is 32.4 percent higher than last year, he said.
The pace of home sales is also considerably faster, Shapiro said. In 1995, a single-family home sold in an average of 75 days. Today, that number is down to 32 days. Similarly, condominiums took an average of 82 days to sell in 1995. Now it's down to 34 days.
But continuing low inventory is presenting challenges for would-be buyers even though far more homes have been built since the previous bubble period, Shapiro said. A check this month showed 996 single family homes for sale.
Perhaps the most revealing statistic relates to how much extra people are prepared to pay for their homes, Shapiro said. In 1995, 1.7 percent of those purchasing single-family homes paid a premium on top of the asking price. Today, that number is up to 15.8 percent. For condominiums, that number has advanced from 2.2 percent in 1995 to 9.7 percent.
Office market
On the commercial front, the office leasing market is showing signs of recovery, according to Steve Metter, one of the principals of developer MW Group Inc., which manages more than 30 commercial projects in Hawaii.There were more office vacancies downtown in the first six months, due to losses in the technology and telecommunications industries as well as space reductions in the finance, law and insurance sectors. But there are also some bright spots, like the Kapiolani corridor, which leased an additional 60,000 square feet of space.
Moreover, two large buildings up for sale, the Davies Pacific Center and the Pan Am Building, are generating a lot of interest and activity, Metter said.
Resort and tourism
The resort and visitor market will continue a moderate recovery, although the Japan market will continue to have problems, according to Joe Toy, president of consulting firm Hospitality Advisors LLC."Compared to the top 25 markets in the U.S. we are actually doing pretty well when you think that after September 11, we were at the bottom of the pile," he said.
Maui and the Big Island continue to lead the pack, although there has been substantial discounting of room prices in the upper end of the market. Toy also sees strength in the budget to mid-price market, largely due to attractive package deals that are appealing to travelers from the West Coast and Canada. Lengths of stay are also increasing, which has helped to offset the decline in visitors. Toy also notes today's hotel owners are running more efficient operations than previous owners and predicts there will be further hotel sales in the near future. The pace of recovery in Hawaii's tourism market lags the U.S. market and Toy predicts it will take another two years for Hawaii to fully rebound.
Industrial
Mark Ambard, principal broker and president of Ambard & Co., sees plenty of development opportunities in Hawaii's industrial real estate sector. He predicts prices will rise in sought-after areas close to town, although continued recovery depends on steady economic growth. There is still available inventory but movement is slow, he said. More companies appear to be re-negotiating their leases rather than look for new space.Still, Ambard believes conditions are right for further development.
"There is now a development window. It's becoming cost-effective and low interest rates make fee-simple land work for development, but only for the owner-user," he said.
Tenants are also looking for more amenities than a good price, Ambard said. He predicts prices will remain stable for tenants over the next few years but will see some increases if the economy continues to recover.
Retail
Oahu's retail sector is experiencing one of its periodic changing of the guards, said retail market specialist Fred Noa, vice president at CB Richard Ellis. That is positive news for the sector, he said."A lot of retailers have matured, some have left, there's a lot of new capital and a lot of new vision. There will always be change in retail. Consumers ensure that because they always want a new experience, so retailers have to constantly re-invent themselves," he said.
There is also major re-positioning of sites, such as the $30 million renovation at the Royal Hawaiian Shopping Center in Waikiki. Noa predicts the luxury market will come back in such areas. Outrigger's planned development of the Beachwalk area of Waikiki will also add about 100,000 square feet of new space, most of it taken up with such things as theme restaurants and lifestyle stores.
There are some higher base rents in regional malls. But due to the general downturn in tourism, there has been about 6 percent pullback in resort rents, he said.
Several large vacancies in malls occurred due the departure of J.C. Penney, but new tenants have already signed to fill those much of those spaces, Noa said.
Overall economy
Bank of Hawaii economist Paul Brewbaker predicts that despite some economic fits and starts caused mostly by the war with Iraq, the economy will accelerate over the next six quarters, led by growth in technology and productivity. Still, there are some concerns."We need to think about how far the cycle will stretch out," he said.
The size of federal budget deficit going from a 2 percent surplus to a 6 percent deficit could temper growth, Brewbaker said.
In Hawaii, construction and residential real estate continue to be bright spots.
Although Brewbaker said he cannot predict exactly when the market will likely reach its peak, he said construction is at least half way through its cycle, judging by the number of building permits issued.
About two-thirds of residential construction continues to be on the neighbor islands, both in single-family homes and condominiums. While he continues to expect a plateau in neighbor island real estate sales, it hasn't happened yet, Brewbaker said.
But in the next year or two, median single-family home prices could reach as high as $600,000, he said. However, that number would be contingent on an interest rate not higher than 7 percent and 3 percent annual growth in household income, he said.